WASHINGTON -- The IRS reform discussion draft released by Senate Finance
Committee Chairman William V. Roth, Jr. on Tuesday adds scores of critically
important new provisions to the House bill in the areas of oversight, employee
accountability and taxpayer protection.
"My IRS reform proposal is the most comprehensive overhaul
of the Internal Revenue Service ever proposed. The House bill is a good
bill, and it is the foundation of my proposal. But, based on what our committee
uncovered in our investigation and hearings, we needed to go much further
to ensure fair and civil treatment of taxpayers. My proposal -- which will
be in final 'mark' form Thursday - increases oversight of the agency, holds
employees accountable for their actions and creates a new arsenal of taxpayer
protections," Roth stated.
The discussion draft released yesterday by Chairman Roth mark will
go further than the House bill in a number of critical areas including:
- Giving the IRS Commissioner the statutory authority to restructure the agency;
- Giving the board more oversight authority over collections;
- Giving the Taxpayer Advocate more independence;
- Holding IRS employees accountable for their actions;
- Giving taxpayers major relief from penalties and interest;
- Giving taxpayers due process protections in the collections area;
- Ensures that innocent spouses get relief with less complication;
- Makes the burden of proof even more taxpayer friendly.
Attached is a nine page document that lists the new provisions, or changes
to the House provisions, in Roth's discussion draft. March 23, 1998 (10:49pm)
PROVISIONS IN THE CHAIRMAN'S IRS REFORM DISCUSSION DRAFT THAT ARE NOT IN THE HOUSE BILL OR ARE MODIFIED FROM THE HOUSE BILL
I. Restructuring and Establishment of an IRS Board
A. Statutory Language -Organizational Structure
Direct the Commissioner of Internal Revenue to restructure the
IRS by eliminating the three-tier (nation/region/district) structure and
replacing current geographically based organizational units with operating
units serving particular groups of taxpayers with similar needs.
Direct the IRS to revise its mission statement to provide greater
emphasis on serving the needs of taxpayers.
B. Establish an IRS Board
The "private-life" experts will be subject to the
same conflict-of-interest restrictions as other employees who provide limited
services to the Government. In addition, the "private-life" experts
will not be allowed to represent parties on any matter before the Board
or the IRS during their term. Nor can the "private-life" experts
represent any party on tax-related matters before the Treasury. As in the
House bill, the "private-life" experts will be subject to (I)
the public financial disclosure rules and (ii) the 1-year post-employment
In addition to the responsibilities provided in the House bill,
the Board must ensure that the IRS has proper procedures in effect to carry
out its mission. The Board will have "big picture" authority
over IRS law enforcement and collection activities. It will have limited
6103 authority with the ability to receive information (including unredacted
reports) prepared by the Treasury Inspector General or made available by
the Commissioner. The Board shall not intervene or be involved in particular
taxpayer matters or individual personnel matters. Board members would be
subject to the same "browsing" rules as other IRS employees.
If the Board identifies a potential problem, it may request the
Inspector General to investigate and report. The Board may receive unredacted
reports that may include 6103 information. The Board will review the Commissioner's
policies to address issues. If the IRS fails to fix a problem identified
by the Board, the Board shall consult the chairmen of the tax writing committees.
The Board shall provide the Secretary of Treasury with 3 candidates
for the position of Taxpayer Advocate. The Taxpayer Advocate will report
to the Commissioner and the Board.
The Treasury Inspector General shall report to the Secretary
and to the Board as to IRS matters.
The Board will sunset on September 30, 2008.
A. Require the IRS Chief Counsel to Report
to the Commissioner
Require the IRS Chief Counsel to report to the Commissioner rather
than to the Treasury General Counsel. The Chief Counsel's powers and duties
would not change unless the Secretary provides notice to Congress. The
Chief Counsel would represent the IRS but would not have any tax policy
B. Taxpayer Advocate
Establish an independent Taxpayer Advocate modeled after Senator
Breaux's bill (S.1308). The Taxpayer Advocate will be selected by the Secretary
of Treasury from 3 candidates recommended by the Board. Candidates may
include IRS employees. The Taxpayer Advocate may not be employed by the
IRS within 5 years after ceasing duties as the Taxpayer Advocate.
Revise the Taxpayer Advocate's responsibilities and reporting
requirements (e.g., providing line authority over local taxpayer advocates
who will be more independent from the IRS).
III. Transfer IRS Office of Chief Inspector Function to Treasury Inspector General
A. Transfer IRS Internal Security and portions of Internal Audit
to the Treasury Inspector General. The Commissioner will retain an appropriate
number of internal auditors for management matters. At least 900 of the
approximately 1200 Treasury Inspector General FTEs must be dedicated to
B. The Treasury Inspector General will be appointed by the President
and confirmed by the Senate. In addition to the standard qualifications
for an Inspector General (e.g., appointed solely on the basis of integrity
and demonstrated successful ability
in accounting, auditing, financial analysis, law, management analysis,
public administration, or investigations), the Treasury Inspector General
must have experience in tax administration and the demonstrated ability
to lead a significant organization.
C. The Treasury Inspector General, Deputy Inspector General, and
two Assistant Deputies (Auditing and Inspection) may not be employed by
the IRS within 2 years before and 5 years after working at the Treasury
Inspector General's office.
D. The Treasury Inspector General must have access to tax return
and return information.
E. Congress must be notified if the Secretary interferes with an
F. In addition to standard reporting requirements the Treasury Inspector
General should be responsible for reporting:
The number of taxpayer complaints during the period;
The number of employee misconduct and taxpayer abuse allegations
received during the period from taxpayers, IRS employees, and other sources;
The current status of each complaint and allegation;
The disposition of each complaint including the outcome of any
Justice Department action and any monies paid to settle suits; and
Whether restrictions on the use of enforcement statistics to
evaluate IRS employees are being followed and that required procedures
to protect taxpayer rights during collection enforcement actions are being
IV. Prohibition on Executive Branch Influence
over Audits and Personnel Flexibilities
A. IRS Personnel Flexibilities
Provide personnel tools that will enable the Commissioner to reorganize the IRS.
Flexibilities for Senior Management, Professional and Technical Positions
In order to give the IRS commissioner the ability to bring the type of
executives to the IRS that he feels is necessary to effect the change in
the organization, there would need to be changes in the current personnel
programs. Currently, the number of employees the Commissioner can appoint
and the pay and other remuneration that can be given to these employees
is limited. For example, the Commissioner can only appoint three individuals
to senior positions who are not IRS career service employees. These changes
would be as follows:
a. Give the IRS Commissioner the authority to fill senior executive
service positions which were reserved for IRS career service employees
with limited or temporary appointments of individuals who have not had
a career with the IRS. These individuals would have time limits on their
employment of up to three years (which could be extended). It is anticipated
that these type of employees would be brought into the IRS to perform specific
functions and then return to the private sector.
b. Provide that the Treasury Secretary may appoint up to 40 senior
executives with technical, professional and management expertise at pay
levels not in excess of the compensation of the Vice President without
approval of the OPM and OMB. In addition, the Treasury Secretary may appoint
individuals to critical positions other than those established under the
streamlined authority for senior executives at pay levels not in excess
of the compensation of the Vice President, with the approval of OMB. The
recruitment, retention, and relocation incentives that the IRS can provide
for these type of senior executives would be expanded, subject to the approval
of the OPM.
c. As part of the return to a service-oriented culture and to reward
these new critical executives for attaining specified performance results,
the IRS will be given the authority to provide for variable compensation
(i.e., bonuses) in excess of amounts currently allowed for up to 25 senior
IRS executives. Any variable compensation award in excess of 20% of basic
pay would have to be approved by the Treasury Secretary. In addition, the
amount of the award when combined with other compensation of an individual
cannot exceed the compensation of the Vice President.
Flexibilities for the General Workforce
a. Extend the voluntary separation incentive pay program that ended
December 31, 1997 to December 31, 2002.
b. Establish streamlined demonstration authority to establish new
human resource programs within a specified time period. The streamlining
eliminates or shortens some of the waiting periods and comment periods
that are usually applicable with demonstration projects. The demonstration
project will be subject to the review of the OPM.
c. As the IRS decreases the levels of management in its organization,
the traditional ways of rewarding superior performers by giving them higher
management authority (along with commensurate pay increases) will not be
as available as before. The Treasury Secretary is given the authority (subject
to criteria established by the OPM) to restructure employee pay rates in
connection with implementing a broad banded employee pay system which will
provide for increases in pay based on increases in job competencies, but
without the need for moving to a higher level of management. This will
be different from the current government pay and grading system.
d. The Treasury Secretary may establish a new performance management
system, developing individual accountability for performance reviews. In
conjunction with this new performance review system, the Treasury Secretary
may also establish a new incentive awards program which awards up to $25,000
without OPM approval.
Any of the personnel flexibilities that affect employees represented
by a union must be agreed to between the IRS and the union. If the union
and the IRS cannot agree, then the matter will be brought before the Federal
Impasse Panel for resolution.
Tentative Government Affairs Committee Recommendations
The Government Affairs Committee generally approves the personnel
flexibility changes discussed above. However, they suggest a number of
a. All the personnel flexibility changes that are discussed above
should be included in a demonstration project. This would mean that prior
to implementing these changes, there would be notification of the each
House of Congress and to the employees likely to be affected by the change.
A demonstration project would normally last 5 years and a decision
would be made at that point whether to make the demonstration project official
or whether to cancel these changes. It is also possible for the Treasury
and the OPM to terminate the demonstration project during its term.
b. They propose limitations on extensions of the voluntary incentive
pay program so that payments are made only if actual employee headcount
reductions are made.
c. With regard to broad banding pay policies discussed above, they
recommend that cost controls be established in the implementation plan.
d. Finally, they believe that the personnel flexibility measures
concerning incentive awards and recruitment, retention and relocation bonuses
should be instituted government wide. Streamlined demonstration authority
should also be available government wide.
Require the IRS to develop employee performance measures that
favor taxpayer service.
Require the IRS to terminate an employee if any of the following
conduct is proven in a disciplinary or other proceeding:
a. Failure to obtain the required approval signatures on documents
authorizing the seizure of a taxpayer's home, personal belongings, or business
b. Perjury (e.g., false testimony in a taxpayer's case, failure
to provide truthful information in the course of a criminal investigation,
or false information in a deposition or affidavit)
c. Falsifying or destroying documents concerning a particular taxpayer
to cover-up employee mistakes.
d. Assault or battery on a taxpayer or other IRS employee.
e. Violation of the civil rights of a taxpayer or other IRS employee.
f. Violation of the Internal Revenue Code, Treasury Regulations, or policies
of the IRS (including the Internal Revenue Manual) for the purpose of retaliating
or harassing a taxpayer or other IRS employee.
V. Electronic Filing - none
VI. Taxpayer Protections
A. Burden of Proof
In any instance in which the IRS uses statistics to determine
a taxpayer's income, the burden of proof in court proceedings would shift
to the IRS to prove the taxpayer's taxable income.
In court proceedings, the IRS would have the burden of establishing
that imposition of penalties is appropriate. If neither the IRS nor the
taxpayer introduce evidence relating to penalties, the IRS should not be
B. Proceedings by Taxpayers
Allow reasonable attorney fees at the prevailing rate in the locality.
Allow up to $1 million in civil damages for willful violations of the
Bankruptcy Code relating to automatic stays or discharges. (Administration
Allow civil damages for unauthorized collection actions against
persons other than the taxpayer. (Administration proposal).
Expand Tax Court jurisdiction to include responsible person penalties
and innocent spouse relief.
If a taxpayer makes a statutory offer after the taxpayer has
a right to an administrative review by Appeals, the IRS rejects the offer,
and the IRS obtains a judgment against the taxpayer in an amount equal
to or less than the amount of the taxpayer's statutory offer, the IRS must
pay the taxpayer's fees and costs incurred from the date of the statutory
offer. Subject to net worth limitations for collection of attorney fees.
C. Relief for Innocent Spouses and Persons with Disabilities
Innocent Spouse Relief
a. Overhaul the current law innocent spouse relief requirements
and replace with proportionate liability. Innocent spouses could elect
out of joint and several liability and be liable only for tax attributable
to their income. The electing spouse must prove the amount of tax for which
they should not be responsible. Community property laws would be disregarded
for the purpose of this relief. As in the House bill, provide the Tax Court
with jurisdiction to determine the limits of the spouse's liability.
b. Require the Treasury Inspector General to certify that the IRS
notifies taxpayers of amount collected from a former spouse.
D. Provisions Relating to Interest and Penalties
If IRS does not contact a taxpayer within 1 year after a return
is filed, then interest and penalties will be suspended (excluding the
failure to file, failure to pay, and civil fraud penalties).
Allow the taxpayer to designate deposits for each payroll period
rather than using the first-in-first-out ("FIFO") method that
results in cascading penalties.
Require each notice of penalty to include a computation of the
Require management to approve non-computer generated penalties
(excluding failure to file, pay, or estimated tax payment).
E. Protections for Taxpayers Subject to Audit or Collection
Prohibit individual taxpayers from extending the 10 year
collection statute of limitations.
a. Specify that offers made by low income taxpayers will be considered
even if the amount of the offer is low. This is not intended to allow others
to make low-ball offers.
b. Prohibit the IRS from requiring a financial statement if the
taxpayer makes an offer based upon dispute as to liability (rather than
based upon ability to pay).
c. The IRS should implement liberal offer in compromise acceptance
procedures to keep taxpayers in the system.
d. Prohibit the IRS from collecting a tax liability by levy if:
(1) an offer in compromise is being processed; (2) within 30 days following
rejection of an offer; and (3) during appeal of a rejection of an offer.
e. Offer in compromises must be reviewed by a higher level before
being rejected on the merits.
f. If the IRS lost the taxpayer's file, prohibit the IRS from rejecting
the taxpayer's offer-in-compromise based upon doubt as to the taxpayer's
Ensure availability of installment agreements if the liability
is $10,000 or less. (Administration proposal)
F. Additional Taxpayer Protections Relating to Liens, Levies, and Seizures
Due Process for IRS Collection Actions
a. Require the IRS to provide notice to taxpayers 30 days (90 days
in case of life insurance) before the IRS liens, levies, or seizes a taxpayer's
b. The taxpayer would have 30 days to request a hearing by IRS Appeals.
No collection activity (other than in jeopardy situations) would be allowed
until after the hearing. The taxpayer could raise any issue as to why collection
should not continue.
c. The taxpayer could petition the Tax Court to contest the Appeal's
Provide taxpayers with an enhanced mechanism to appeal an audit.
Codify existing IRS procedures which allow a taxpayer to request early
referral to Appeals. Also, codify procedures relating to the existing alternative
dispute resolution program but reduce the threshold from $10 million to
Direct IRS to establish an independent appeals function. Prohibit
ex parte communication between Appeals and other IRS personnel (collection
or audit) as to a particular taxpayer's case.
Require two supervisors to sign under penalty of perjury that they have
reviewed the taxpayer's information, verified that a balance is due, and
believe a lien, levy, or seizure is appropriate given the taxpayer's circumstances
(including the amount due and the value of the asset). Require the Treasury
Inspector General to collect this information and annually report to the
tax writing committees.
Clarify that the IRS cannot sell a taxpayer's property for less than
the minimum bid price and cross reference to civil damages provision for
unauthorized collection actions.
Require the IRS to provide an accounting and receipt to the taxpayer
(including the amount credited to the taxpayer's account) when the IRS
seizes and sells the taxpayer's property.
Require the IRS to implement, within 2 years, a uniform asset
disposal mechanism (which may include consideration of outsourcing) for
sales of seized property to prevent revenue officers from conducting sales.
Increase the amount exempt from levy to $10,000 for personal
property and $5,000 for books and tools of trade indexed for inflation.
Require the IRS to immediately release a levy upon agreement that the
amount is "currently not collectible".
Current law prohibits the IRS from levying property if the amount
of IRS expenses of levy and sale exceed the fair market value of such property
at the time of the levy. Codify portions of the Internal Revenue Manual
which require the IRS to investigate the status of the property prior to
levy. Require the Treasury Inspector General to certify IRS compliance.
Suspend collection by levy during refund suit. (Administration
Require district counsel review of jeopardy and termination assessments
and jeopardy levies. (Administration proposal)
Codify certain fair debt collection practices (e.g., prohibit
late night calls to taxpayers, harassment, etc.). (Administration proposal)
Increase superpriority limits (e.g., mechanics liens from $1,000
to $5,000 and casual sales from $250 to $1,000). (Administration proposal)
Allow personal delivery (as an alternative to US Mail) of a
preliminary notice that the IRS intends to assess a 100 percent penalty.
Allow taxpayers to bring an action to quash all third-party
summonses (taxpayers would receive notice of the summons). (Administration
Allow service of summons by mail. (Administration proposal)
Provide a new remedy for third-parties who claim the IRS filed
an erroneous lien to obtain a certificate of discharge of property from
lien as a matter of right. This would enable the third-party to post a
bond and sell the property free and clear of the Federal tax lien. Also,
allow third-parties to challenge a lien in court. The statute of limitations
on collecting from the taxpayer would not be stayed during the third-party
litigation. (Modified Administration Proposal)
Waive the 10% addition to tax for early withdrawal from an IRA
or other qualified plan if the IRS levies.
Prohibit the IRS from seizing real property used as a residence
to satisfy unpaid liabilities less than $5,000.
G. Other Matters
Require the Treasury to study the effect of extending from January
31st to February 15th, the deadline for providing taxpayers with information
returns. The report is due 9 months after date of enactment.
Expand the prohibition on the use of enforcement statistics to
evaluate individual employees to all IRS employees. Require the Treasury
Inspector General to annually report to the tax writing committees on whether
the law is being followed.
Require the IRS to place a priority on employee training and
adequately fund employee training programs. Within 90 days after enactment,
require the IRS to provide to the tax writing committees a comprehensive
multi year plan to: (1) ensure adequate customer service training; (2)
review the organizational design of customer service; (3) implement a performance
development system; and (4) provide in fiscal year 1999, 16-24 hours of
conflict management training for collection employees.
Require all IRS notices and correspondence to include the name,
phone number, and address of an IRS employee the taxpayer should contact
regarding the notice.
Modify section 6103 to allow the tax writing committees to obtain
data from IRS employees regarding employee and taxpayer abuse.
Require the Treasury Inspector General to review and report on
whether IRS employees are following the law and not directly contacting
taxpayers who are represented.
Provide that it is the Sense of the Congress that achieving success
on the Year 2000 computer conversion problem is a high priority.
Provide that the use of pseudonyms by IRS employees may not be
approved merely at the employee's request. The employee must provide justification
and management must agree.
Provide that in any matter involving the submission of a substantive
legal matter involving a specific taxpayer to the national office by the
field (e.g., Technical Advice), the taxpayer may exclude field office personnel
from the taxpayer's conference of right with the national office.
In order to protect innocent taxpayers who may be mislabeled
as "illegal tax protesters", prohibit the IRS from labeling taxpayers
as "illegal tax protesters" (or any similar label) and from maintaining
lists of such individuals. This proposal does not affect the ability of
the IRS to label a taxpayer as a "potentially dangerous taxpayer".
Require the Treasury Inspector General to annually report to Congress on
whether the IRS is in compliance.